Vacation rental: the real numbers behind a 9% ROI
When an ad promises a 9% ROI, the right question isn't whether it's possible (it is) but what they included and what they left out to get there.
An ROI isn't a fact about the property, it's the result of a subtraction. Whoever presents it decides what goes in and what stays out, and that is where the gap opens between the number in the ad and the one you'll see on your statement.
Where the gross comes from
Gross vacation rental income depends on three things: nightly rate, annual occupancy, and the operator's commission. A 70% occupancy rate in an established area like Aldea Zamá is realistic; a sustained 85% year-round almost never is. When someone projects at 85% to make the ROI look clean, that's the first red flag.
The nightly rate used to project tends to be the high-season one, and average annual occupancy doesn't tell December apart from September. Asking for the month-by-month breakdown of the last twelve months, rather than the average, is what shows whether the project lives off six good weeks a year.
What the projection leaves out
From gross income you need to subtract what almost never appears in the projection: operator commission (20%-30%), condo maintenance, property tax, furniture replacement, and the vacant periods between guests. Once you factor those in, a 12% gross can land at a real net of 8%-9%. That 9% net is a good number; the problem is when you're sold the gross as if it were the net.
Two costs are almost never written down and do hurt. Furniture replacement, which in vacation rental comes around every three or four years and is not small. And the days the unit is blocked, whether for maintenance or for the owner's own use: if you plan to use it two weeks a year, those two weeks come out of the income and belong in the math.
How we read an ROI before recommending it
When we evaluate an investment property, we start from the operator's actual occupancy history and subtract all costs before giving you a number. We'd rather tell you 8% that holds than 12% you'll never see. An honest return is one you're still seeing on your statement two years in.
In practice the number we give starts from that history, subtracts commission, maintenance, property tax, insurance, and an annual reserve for replacement, and discounts the nights of owner use. It comes out lower than the one in the ad almost every time. It is the one that still stands in year two, which is when most projections fall apart.
